Home Country Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The home country is the country in which a firm was founded and/or is considered to be the firm’s traditional base. This is generally a simple concept and remains simple as long as the firm retains its headquarters in the original home country. Thus BMW considers Germany to be its home country, General Motors looks to the United States, Hyundai to South Korea, and Toyota to Japan. The allied term host country refers to the nation in which a foreign subsidiary is based.

Cross-border mergers complicate the picture, with the acquired firm changing from being at home to being a foreign subsidiary now hosted by its former home country. Thus, in the case of Jaguar—acquired by Ford in 1989—the United Kingdom serves as merely the host country for this subsidiary of a corporation with an American (home country) parent. And the United States became a host country for Chrysler Corporation after it was acquired by Germany’s Daimler-Benz AG. Finally, simple home-host classifications lose their salience for truly global companies with multiple significant footholds. For example, South African Breweries acquired Miller Brewing Company in 2002, but after several other acquisitions in Asia, Europe, and South America, it identifies itself with United Kingdom companies listed on the London Stock Exchange.

Researchers in the international management area have generally considered home country effects to be significant to managerial (and strategic) decisions taken at headquarters; and host country effects more significant to those decisions taken at the subsidiary level. These assumptions are grounded in the logic that either level of organization—headquarters or subsidiary—is grounded in its local culture and institutional framework. Authors such as Erin Anderson and Hubert Gatignon note, however, that there are two possible approaches to understanding how a multinational corporation may tend to exert control over a foreign subsidiary: First, the corporation may choose to lessen control as a way of compensating for its lack of knowledge concerning the distant location, relying on subsidiary management to contribute local knowledge; or, it may opt for stronger managerial controls as a way of reducing potential risk and dependence upon affiliates whose actions may to be regarded as opportunistic or poorly understood. Similarly, Yaping Gong shows that headquarters management may opt for close monitoring of a culturally distant subsidiary, but this very distance makes monitoring less effective due to information asymmetry. Other researchers argue that these divergent predictions may explain the inconsistent findings regarding the relationship between cultural distance and entry mode, and go on to show how home country effects generally eclipse host country effects in crucial decisions concerning expatriate deployment. Another study by David Brock and David Barry argues that home country effects tend to overshadow those at host country level in choices and design of planning processes.

It may well be that forces of globalization are having their effect on the balance of home country and host country effects on multinational subsidiaries. Traditionally, forces for localization were stronger, and multidomestic mindsets were more common, and thus one can understand the traditional consideration of the significance of host country forces on foreign subsidiaries. However, as forces for integration are increasingly enabled and strengthened (inter alia, by technology) and global mindsets are increasingly predominant, it is inevitable that home country effects would gain the upper hand.

Bibliography:

Julian Birkinshaw and Neil Hood, eds., Multinational Corporate Evolution and Subsidiary Development (Macmillan/St. Martin’s Press, 1998);
David M. Brock and David Barry, “What If Planning Were Really Strategic? Exploring the Strategy-planning Relationship in Multinationals,” International Business Review (v.12/5, 2003);
David Brock, Oded Shenkar, Amir Shoham, and Ilene Siscovick, “National Culture and Expatriate Deployment,” Journal of International Business Studies (v.39/5, 2008);
Hamid Etemad and Louise Seguin Dulude, Managing the Multinational Subsidiary: Response to Environmental Change and the Host Nation R and D Policies (Croom Helm, 1986);
Hubert Gatignon and Erin Anderson, “The Multinational Corporation’s Degree of Control over Foreign Subsidiaries: An Empirical Test of a Transaction Cost Explanation,” Journal of Law, Economics and Organization (v.4/2, 1988);
Yaping Gong, “Subsidiary Staffing in Multinational Enterprises: Agency, Resources, and Performance,” Academy of Management Journal (v.46/6, 2003);
Lars Otterbeck, ed., The Management of Headquarters-Subsidiary Relationships in Multinational Corporations (St. Martin’s Press, 1981);
Stuart Paterson and David M. Brock, “The Development of Subsidiary Management Research: Review and Theoretical Analysis,” International Business Review (v.11/2, 2002);
Michael A. Witt and Arie Y. Lewin, “Outward Foreign Direct Investment as Escape Response to Home Country Institutional Constraints,” Journal of International Business Studies (v.38/4, 2007).

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